It seems Admiral isn’t immune to bodily injury after all, as its loss ratio looks rather less rosy than predicted. Elsewhere, Ageas’s impressive turnaround shows Barry Smith knows what he’s doing

Today is the day that Admiral stopped defying gravity.

This morning, the insurer warned that it will not be able to release any reserves in the second half of the year if bodily injury claims trends persist. The insurer’s report has sent shockwaves through the City, prompting a crash in the share price of the former stock market darling.

Only just over a year ago, the motor specialist was denying that bodily injury was even a problem, an account at odds with the rest of the industry’s experience.

A quote from Admiral’s first-half results for 2010 is worth revisiting. In it, the Cardiff-based insurer stated that “a number of insurers have reported an unexpected surge in bodily injury claims costs as a key reason for the worsening results. Admiral’s claims experience over the past 18 months has not included any unusual trends in bodily injury or damage claims.”

But those bodily injury claims, which the motor insurer didn’t even recognize just over a year ago, have come back to haunt Admiral.

The message from south Wales is that Admiral’s loss ratios for 2010 and 2011 will be worse than earlier rosy projections.

Short of immediate implementation of the Jackson Review reforms, bodily injury trends will persist.

Admiral first showed this earlier this year, when it said that its first-half reserve releases would be just £4m, compared to £17.3m for the same period in 2010, due to higher-than-expected claims levels.

As a caveat, it is worth noting Admiral’s statement that it expects its full-year profitability for 2010 will be 10% higher than the figure for last year. And it says its combined ratio will be higher than the market average.

And while 10% sounds good, it is a lot less than the 17% increase analysts were recently predicting.

Admiral’s statements have proved to be an unreliable guide to the future so the City will now be taking its predictions with a bigger pinch of salt.

Ageas initiatives pay off

The news from Southampton is happier than that from Cardiff this morning, with Ageas UK reporting a near five-fold increase in profits. Ageas UK’s profit before tax has jumped to £78.3m in the first nine months of 2011, compared to a figure of £16.6m pre-tax profit for the same period last year.

The foundations for this spectacular rise are a return to profitability in the core underwriting business, which has reported a combined operatng ratio of 99.9%, compared to a loss-making 104.9% during the first three-quarters of 2010. Ageas’s motor book – so key to the company’s overall performance – has recorded a particularly marked improvement, falling to 96.4%.

The company’s various initiatives are paying off, with the Tesco Underwriting joint venture delivering 1.4 million customers since its launch just over a year ago, while broking revenues are up 70% to £163m, reflecting the recent Castle Cover and Kwik-Fit Financial Services acquisitions. 

And these results do not even show the impact of Ageas’ most recent deal, its five-year contract to provide insurance products to Vauxhall and Chevrolet customers, which went live in October.

Ageas UK chief executive Barry Smith has been building a strong platform over the past 18 months – today’s results show that this work appears to be paying off.

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